Cecort Realty Dev., Inc. v. Llompart-Zeno

• Decision Date: 24 April 2015
• Docket Number: Civil No. 3:15–cv–01335 JAF.
• Parties: CECORT REALTY DEVELOPMENT, INC., Plaintiff, v. Honorable Isabel LLOMPART–ZENO, individually and in her official capacity as Administrative Director of the Puerto Rico Courts Administration Office, Defendant.
• Court: U.S. District Court — District of Puerto Rico

100 F.Supp.3d 145

CECORT REALTY DEVELOPMENT, INC., Plaintiff

v.Honorable Isabel LLOMPART–ZENO, individually and in her official capacity as Administrative Director of the Puerto Rico Courts Administration Office, Defendant.

Civil No. 3:15–cv–01335 JAF.

United States District Court, D. Puerto Rico.

Signed April 24, 2015.

Manuel San–Juan–Demartino, Manuel San Juan Law Office, San Juan, PR, for Plaintiff.

MEMORANDUM OPINION AND ORDER

JOSÉ ANTONIO FUSTÉ, District Judge.

This case involves a 42 U.S.C. § 1983 claim by a one-man corporation that is the owner of two high-rise buildings leased to the Puerto Rico Judicial Branch. The lease agreement was subscribed on April 14, 2000, by the then Director of the Office of Courts Administration of Puerto Rico and Cecort Properties & Services Corporation, the one-man corporation owned by attorney César Cortés–García (hereinafter, “Lease Agreement”).¹ The negotiations that led to the contract entailed Cecort Properties purchasing a plot of land where the corporation would construct two buildings. One building was intended to house the Puerto Rico Circuit Court of Appeals (hereinafter, “Court of Appeals”) and its thirty-nine authorized appellate judgeships. The second building would be the seat of the Office of Administration of the Courts of Puerto Rico. (Hereinafter referred to as “OAT” for the Spanish name Oficina de Administración de los Tribunales.)

The § 1983 claim by Cecort Realty Development, Inc.² (hereinafter referred to as “Cecort”) against the present Court Administrator, Superior Court Judge Isabel Llompart–Zeno, claims deprivation of property rights, the taking of property without due process of law, and a host of other claims as a result of the cancellation of the Lease Agreement after the conclusion of the first ten-year period of a contract that the Administrator of the Courts had the right to extend for two additional periods of ten years each, for a total occupancy possibility of thirty years. Notice of nonrenewal was due to Cecort 360 days before the conclusion of the first ten-year period.

This is the type of case in which judges, state or federal, find no professional satisfaction when diving into the controversy that requires decision making. It involves the location of the home of Puerto Rico's second most important appellate tribunal after the Puerto Rico Supreme Court. For years before the appellate tribunal's creation in its present form in the year 2003, it struggled to conduct business in locations less than favorable or deserving of a Court of Appeals. Indirectly, the Judges of that Court of Appeals are some of the unnamed third-party victims and sufferers of this controversy. The decision by the OAT to cancel the lease based on certain Puerto Rico Comptroller's findings, complicated with the dire insolvency of the local government, has resulted in the rushed and difficult plan to move to a 40–plus year old run-down building once the home office of The Western Bank of Puerto Rico which had failed by insolvency and was now in the hands of a governmental entity.

The Court of Appeals and the OAT will suffer the consequences of a hurried, unpleasant relocation. A judicial institution deserves better than that. There is another non-objective party, the one-man corporation Cecort, all because under law and contract, there is only one way to proceed; the law must be adhered to. When even well-intended actions result in contradiction to the order of law, societal norms require that the law prevail irrespective of foreseen or never anticipated consequences.

Before proceeding any further, we find that the court has jurisdiction, even to eventually dismiss the § 1983 complaint on the merits. We find that the Lease Agreement suffers from the effects of ity. We also find that in addition to being and void, the contract was properly cancelled by the OAT Court Administrator on account of the comptroller's findings and contractual clauses. We find that Cecort pleaded the federal complaint in a way that adequately invoked federal jurisdiction only to lose on the merits.

How it all Started

In or about 1999 or 2000, Attorney César Cortés–García, an entrepreneur involved in real estate, got wind that the Puerto Rico courts had interest in securing recently-built facilities in conformity with court design guidelines for both the Puerto Rico Circuit Court of Appeals and the OAT. Cortés established some personal contacts and seeing a business opportunity, located a vacant lot in the Hato Rey area that was available for purchase. Cortés, through his one-man corporation Cecort Properties, entered into a preliminary agreement with the OAT Administrator to construct two adjacent buildings with parking facilities in the vacant lots available for sale. He then proceeded to purchase the lots and hire an architect, Antonio Suárez, who would meet with court personnel, study their needs, and design the buildings. These structures would be leased to Puerto Rico Courts for a period of ten years, giving the courts two renewal options for two extra terms of ten years each, for a total potential occupancy of thirty years.

Cortés attempted to establish during his testimony that the existence of a so-called “pre-contract” and later the Lease Agreement,³ were creatures fathered solely by the OAT, but later he admitted to having participated fully in the negotiation of the terms of the Lease Agreement and that the agreed-upon terms were reduced to final form, that is, typed and printed as a final document at the offices of OAT. Contrary to the impression Cortés tried to create at the federal hearing, this was not an adhesion contract placed on the table by the OAT on a “take it or leave it” basis. César Cortés–García is a seasoned businessman, and he was the face and force behind the offer to build to specification and lease the constructions to the Puerto Rico Courts.

Cortés placed great emphasis in the first ten-year term and throughout his testimony and demeanor, omitted much reference to the thirty years, trying to distance himself from the purpose behind the division of the contract into three ten-year terms. Under law and regulations, any contract of such magnitude, where two tailor-made buildings are to be erected for a special tenant, would have required a bidding process because public funding was involved, and a thirty-year term was part of the agreement. The Lease Agreement contemplated a deal that would place the Court of Appeals and the OAT in the specifically-designed buildings for a period of thirty years. No one, including César Cortés–García, can reasonably say that the intent was just to have a ten-year lease. Instead, by presenting the deal as a ten-year contract with renewable terms, a dice was rolled stretching the regulations, or interpreting them conveniently, to avoid public bidding. For all purposes, the transaction was intended to hopefully last thirty years, producing rent per square foot of office space and parking space far exceeding the going prices for prime real estate in the Hato Rey area of San Juan. Eventually, these three ten-year terms of the contract, the combination of term of years and public cost, were the object of adverse findings by the Comptroller of Puerto Rico. On the OAT's side, the then Administrator of Courts testified that she proceeded to accept the terms and sign the contract relying in good faith on a legal opinion that the OAT's internal legal division issued, vouching for the legality of the terms and conditions.

The financing of this major project was all arranged by César Cortés–García and his companies, Cecort Properties & Services Corporation and Plaintiff Cecort. The architectural design was contracted and paid for by Cortés/Cecort. In addition to the site in controversy, Cortés owns a building in Utuado, Puerto Rico, and leases the property to the Courts, which houses the Court's operation in that Judicial Region.

Eventually, the project started and was finished in two phases. The first phase consisted of constructing the building that would house the Court of Appeals. That building was finished and accepted on July 13, 2003. The second phase contemplated completing the project by erecting the smaller building that would house the OAT. This second building was finished, delivered, and accepted by OAT on June 1, 2005. Some change orders were placed by the OAT and the Lease Agreement contains four addendums that reduce to writing the various changes and adaptations that were requested and made before 2005. After 2005, both the Court of Appeals and the OAT occupied the whole complex and rent due and owing was faithfully paid every month by the OAT to Cecort.

The Comptroller's Report DA–12–52 of March 19, 2012

In the year 2012, the Comptroller of Puerto Rico reviewed the transaction between the OAT and Cecort and charged a number of substantial adverse findings. The salient ones are the following:

Finding 1: Preliminary lease agreement for the spaces to be used by the Judicial Branch were granted to a private corporation without complying with the bidding process or required by regulators and the final contract related to that lease did not protect OAT's interests.

Finding 2: Rental fee agreed to in the lease contract for the OAT and Court of Appeals buildings exceeded the reasonable rates paid in the market.

After the issuance of the Comptroller's Report, the Cecort transaction caught the attention of the Puerto Rico Supreme Court. See Maranello, Inc., et al. v. OAT, 186 P.R.Dec. 780, 2012 WL 4465600 (2012). Justice Pabón–Charneco commented negatively about the transaction in a dissenting opinion. Id. at 826.

Later, on November 12, 2014, the Puerto Rico Supreme Court once again tackled the issues surrounding the Lease Agreement, including the lack of bidding process and the excessive rent. See In re: Regulation for Judicial Branch No. ER–2014–3, 2014 TSPR 135, 2014 WL 5898173. There, the Supreme Court of Puerto Rico ordered the OAT to proceed with...